Reverse Iron Condor Spread
- Thread starter kjb1891
- Start date
I'm absolutely abysmal at picking direction. I've had my best success being neutral as well.
That's why I've been reading up on different neutral option strategies. Trying to pick the markets direction seems like a fools game. I've tried timing and predicting directional moves before. Sometimes with great success and sometimes not so great. I just want to be consistent, and that just doesn't seem like the way to do it. It seems more like gambling.
Do most of you have just one "bread and butter" strategy that you tend to stick with a large majority of the time? Or do you have a multitude of strategies that you'll be utilizing at any given time?
Thanks for great responses everyone.
Do most of you have just one "bread and butter" strategy that you tend to stick with a large majority of the time? Or do you have a multitude of strategies that you'll be utilizing at any given time?
Thanks for great responses everyone.
Hey Mark,
While it may sound backwards, I trade not to lose. When I began concentrating on limiting my losses, my overall performance and consistency improved dramatically. I must have had 100's of trades last year that made or lost under $10. The oldest adage in the book is sooo true: Let your profits run and cut your losses.
The reasons that you and I are on opposite ends of the spectrum is because:
1) Our time frames are so different. With a 2-3 month time frame for your iron condors, you're a long term investor to me (g). Since my focus is intraday, my bias may shift to more long or more short based on what's right in front of my nose.
2) Other than some earnings plays, I mostly trade equities since they have so much less B/A slippage and no fractional delta hassle. It's dollar for dollar.
What we have in common is trading from a neutral bias. I have no market outlook and no ability to prognosticate what tomorrow will bring so therefore I get back to neutral by the end of the day.
While it may sound backwards, I trade not to lose. When I began concentrating on limiting my losses, my overall performance and consistency improved dramatically. I must have had 100's of trades last year that made or lost under $10. The oldest adage in the book is sooo true: Let your profits run and cut your losses.
The reasons that you and I are on opposite ends of the spectrum is because:
1) Our time frames are so different. With a 2-3 month time frame for your iron condors, you're a long term investor to me (g). Since my focus is intraday, my bias may shift to more long or more short based on what's right in front of my nose.
2) Other than some earnings plays, I mostly trade equities since they have so much less B/A slippage and no fractional delta hassle. It's dollar for dollar.
What we have in common is trading from a neutral bias. I have no market outlook and no ability to prognosticate what tomorrow will bring so therefore I get back to neutral by the end of the day.
Quote from kjb1891:
Do most of you have just one "bread and butter" strategy that you tend to stick with a large majority of the time? Or do you have a multitude of strategies that you'll be utilizing at any given time?
Thanks for great responses everyone.
One strategy is my favorite (iron condor).
But that is NOT permanent. When market conditions change, I find other, more suitable (to me) plays.
It's necessary to be both flexible and comfortable with the strategies you do use.
As SPIN mentioned, the skill of the trader is important; risk and money management are essential; the strategy is merely the tool used by the trader to play the game.
Mark
Does your broker offer a decent option analyzer? If it does, compare your "reverse" iron condor to a straddle or a strangle. I really don't see an advantage to putting on that trade, other than a smaller margin requirement (and smaller reward to go with it).
Hi guys, it's been a few years since the posts, hopefully you all are still trading and are doing well...
I switched from day trading to options, I've traded options before, but mostly covered calls, now i'm doing reverse condors... here are some thoughts...
1. Outlook has to be 3-4 months out,,,,that's plenty of time for a stock to move in either direction.
2. Implied volatility has to be high,,that way options premiums are high as well.
3. Farther out of the money options must still have a decent value to lower your overall cost.
4. Options volume has to be high to avoid slippage on all 4 legs.
5. Exit strategy must be in place, either based on time or %, if i loose 50% on either side, i'll bail.
6. Simple calculations needs to be made:
Example: XYZ trading at 40 in April
a) August XYZ 45 call $3.00, 50 call $1.80=-1.20
b) August XYZ 35 call $3.00, 30 call $1.80=-1.20
--------------------------------------------------------------------
Max Loss if taken 1 side out at 50% loss and other one reaches max pforit
Max Loss $1.2 - Max Profit $5.00=$+3.8
--
Or if stock doesn't move in either direction, max loss will be $-2.4
Now, for the price to reach 50 or 30 XYZ has to move 25%, so it's better to select stocks that are trending strongly, likely parabolic .
I've been tarding these for a couple of months only, this is the plan i'm following so far, will see what will happen, I'm starting slow, only 1 contract per stock, then will increase if proven successful.
------------------------------------------------------------------------
Yesterday I did Reverse Condor on BBBY right before the earnings, and close the trade today for a nice profit, Planning to do the next one on NFLX. Those plays can be done placing a trade a day before the earnings announcement.
-----------------------------------------------------------------------------------
Before sticking to this strategy, I've explored all the other once out there, in deep detail. Was considering credit spreads, but you never know when you will wake up to a large gap and see more money lost then can be made in a few months.
To those who compared it to straddles or strangles,
Unlimited profit does really sound good, but in reality, how often does that happen. And what exactly does unlimited profit mean, for a $40 stock to move to 300-500$ in a month or 2?
Lets say the stock is at 40, you expect it to move to 45, you can buy call and put for approximately $6 combined, now the stock has to move 6$ to either direction for your to b/e. But this way, and that is my opinion, you significantly reduce the cost of your trade, for a rational return..
Not considering my previous knowledge of option trading, i've been spending a lot of time to get as much information as possible, also not being afraid to put some creativity into it, I will highly appreciate all the comments, concerns and criticism ,,,Thank You ALL>...
I switched from day trading to options, I've traded options before, but mostly covered calls, now i'm doing reverse condors... here are some thoughts...
1. Outlook has to be 3-4 months out,,,,that's plenty of time for a stock to move in either direction.
2. Implied volatility has to be high,,that way options premiums are high as well.
3. Farther out of the money options must still have a decent value to lower your overall cost.
4. Options volume has to be high to avoid slippage on all 4 legs.
5. Exit strategy must be in place, either based on time or %, if i loose 50% on either side, i'll bail.
6. Simple calculations needs to be made:
Example: XYZ trading at 40 in April
a) August XYZ 45 call $3.00, 50 call $1.80=-1.20
b) August XYZ 35 call $3.00, 30 call $1.80=-1.20
--------------------------------------------------------------------
Max Loss if taken 1 side out at 50% loss and other one reaches max pforit
Max Loss $1.2 - Max Profit $5.00=$+3.8
--
Or if stock doesn't move in either direction, max loss will be $-2.4
Now, for the price to reach 50 or 30 XYZ has to move 25%, so it's better to select stocks that are trending strongly, likely parabolic .
I've been tarding these for a couple of months only, this is the plan i'm following so far, will see what will happen, I'm starting slow, only 1 contract per stock, then will increase if proven successful.
------------------------------------------------------------------------
Yesterday I did Reverse Condor on BBBY right before the earnings, and close the trade today for a nice profit, Planning to do the next one on NFLX. Those plays can be done placing a trade a day before the earnings announcement.
-----------------------------------------------------------------------------------
Before sticking to this strategy, I've explored all the other once out there, in deep detail. Was considering credit spreads, but you never know when you will wake up to a large gap and see more money lost then can be made in a few months.
To those who compared it to straddles or strangles,
Unlimited profit does really sound good, but in reality, how often does that happen. And what exactly does unlimited profit mean, for a $40 stock to move to 300-500$ in a month or 2?
Lets say the stock is at 40, you expect it to move to 45, you can buy call and put for approximately $6 combined, now the stock has to move 6$ to either direction for your to b/e. But this way, and that is my opinion, you significantly reduce the cost of your trade, for a rational return..
Not considering my previous knowledge of option trading, i've been spending a lot of time to get as much information as possible, also not being afraid to put some creativity into it, I will highly appreciate all the comments, concerns and criticism ,,,Thank You ALL>...
It appears that the calculations aren't that simple
If the spread costs $2.40 then the maximum profit is $2.60
In order to realize the maximum profit, the UL will have to be outside the short strikes *at* expiry. Prior to expiry, the short legs will be a drag on profitability and you'll have far less than the max profit from a 25% move, To drive the options to parity prior to expiry, you might need a 50+ % move.